Geography and Firm Exports: New Evidence on Sunk Costs
This paper presents an extension of the analysis of the geographic dimension of trade, by examining the trading patterns of individual firms. Aggregate data does not tell us if a sector is geographically diversified because there are many exporting firms, each of which specialises in a separate destination, or if the firms themselves are selling their exports in many markets. This analysis is made possible by access to a new survey dataset of Irish firms, which includes detailed information on firm characteristics and on the destinations of their exports over a two-year period. In line with Eaton, Kortum and Kramarz (2004), we find that a large number of firms serve only the domestic market and many exporting firms export to a single foreign market. Although there is little movement of firms into and out of exporting, firms’ involvement in individual export markets is much more dynamic. Over thirty percent of firms change their market coverage, usually by entering or exiting one additional market. This is interpreted as evidence that the bulk of any sunk cost encountered in exporting in incurred during the initial entry to the export market. Subsequent entry to additional markets is made easier by prior export experience, which reduces the sunk cost of extending market coverage.
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- Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004.
"Dissecting Trade: Firms, Industries, and Export Destinations,"
American Economic Review,
American Economic Association, vol. 94(2), pages 150-154, May.
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- Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," NBER Working Papers 10344, National Bureau of Economic Research, Inc.
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- Frank Barry & Stephen Pavelin, 2003.
"The Single Market and the geographical diversification of leading firms in the EU,"
200305, School of Economics, University College Dublin.
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- Heckman, James J, 1979.
"Sample Selection Bias as a Specification Error,"
Econometric Society, vol. 47(1), pages 153-61, January.
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